1. Pricing Strategies
7.3

2. Product Mix Strategies
Involve adjusting prices to maximize the profitability for a group of products rather than on just one item.
One product may have a small profit margin while another may be high, balancing the effect of the lower priced one.

3. Product Mix Strategies
Price Lining – offers merchandise in a given category at certain prices
Shirts at $25, $35, $50
Upper tier is better quality premium brand
Middle tier is for average priced brands
Lower tier for price-conscious customers.

4. Product Mix Strategies
Optional Product– setting prices for accessories or options sold with the main product.

5. Product Mix Strategies
Captive Product – sets the price for one product low but compensates for that low price by pricing the supplies needed to operate that product high.

6. Product Mix Strategies
Bundle Pricing – several complementary products sold at a single price.
Travel services
Computers and software

7. Product Mix Strategies
Geographical Pricing – refers to price adjustments required because of the location of the customer for delivery of products.
The manufacturer assumes responsibility for the cost and management of product deliver.

8. Psychological Pricing – techniques that create an illusion

9. Illusions Illusions are very interesting.
If you’d like to see some, click on the one pictured below. These illusions don’t really have a lot to do with pricing strategies, but they are interesting and powerful. (As are pricing illusions.)

10. Psychological Pricing
Odd-Even Pricing
Odd numbers convey a bargain image -- $.79, $9.99, $699
Even numbers convey a quality image -- $10, $50, $100

11. Psychological Pricing
Prestige Pricing – sets a higher than average price to suggest status

12. Psychological Pricing
Multiple-Unit Pricing – 3 for $.99
Suggests a bargain and helps increase sales volume.
Better than selling the same items at $.33 each.

13. Psychological Pricing
Everyday Low Prices (EDLP) – set on a consistent basis

14. Promotional Pricing -- Used with sales promotion
Loss Leader Pricing – offering very popular items for sale at below-cost prices
Special-Event
Back-to-school specials
Dollar days
Anniversary sales
Rebates and Coupons

15. Discounts and Allowances
Cash Discounts – offered to buyers to encourage them to pay their bills quickly.
2/10, net 30
Quantity Discounts – offered for placing large orders
Trade Discounts – the way manufacturers quote prices to wholesalers and retailers.

16. Discounts and Allowances
Seasonal Discount – offered outside the customary buying season

17. Discounts and Allowances
Allowances – go directly to the buyer. Customers are offered a price reduction if they sell back an old model of the product they are purchasing.

18. Steps for Determining Prices
Establish Pricing Objectives
Increase sales volume?
Prestigious image?
Increase market share?

19. Steps for Determining Prices
Study Costs
Can you make a profit?
Can you reduce costs without affecting quality or image?

20. Steps for Determining Prices
Estimate Demand
What do customers expect to pay?
Prices usually are directly related to demand.

21. Steps for Determining Prices
Study Competition

22. Steps for Determining Prices
Decide on a Pricing Strategy
Price higher than the competition because your product is superior.
Price lower, then raise it once your product is accepted.

23. Steps for Determining Prices
Set Price
Monitor and evaluate its effectiveness as conditions in the market change.

24. Pricing Technology
Smart Pricing – decisions are based on an enormous amount of data that Web-based pricing technology crunches into timely, usable information.
Communicating Prices to Customers – electronic gadgets that provide real-time pricing information such as electronic shelves, digital price labels

25. Pricing Technology
RFID Technology – wireless technology that involves tiny chips embedded in products. The chip has an antenna, a battery, and a memory chip filled with a description of the item.